The Obama administration decision will help modernize and expand the health insurance program for the poor, possibly covering hundreds of thousands more residents over the next five years.

Reporting from Washington — The Obama administration on Tuesday approved a $10-billion plan to help California modernize and expand its Medicaid health insurance program for the poor, pushing the state to the forefront of the national effort to implement the new healthcare law.

The administration's much-anticipated decision to grant a so-called Medicaid waiver could ultimately help cover hundreds of thousands more Californians over the next five years. State and federal officials hope that will bolster efforts to improve the quality and efficiency of care provided to the state's poorest residents.

"California is now firmly leading the country in the implementation of health reform," said Peter Harbage, an independent consultant who has worked extensively on healthcare policy in the state.

The state's head start was made possible by an agreement between Washington and Sacramento to reallocate money already planned for the state's Medicaid program.

Whether the California agreement becomes a template for the rest of the country remains to be seen. Republican leaders in many states are fighting against implementation of the new healthcare law and arguing that the next Congress should repeal it.

But Gov. Arnold Schwarzenegger, a Republican, worked closely with the Obama administration to secure the waiver.

"This agreement is great news for the people of our state because we will be able to expand coverage, improve the delivery of care and build a strong bridge to federal healthcare reform with increased federal resources," Schwarzenegger said in a statement Tuesday.

A month ago, Schwarzenegger signed legislation to create a California insurance exchange, making the state the first to develop such a market since the law's enactment. (Massachusetts and Utah had set up exchanges before the law passed.)

Beginning in 2014, these state-based exchanges, a foundation of the new healthcare law, are to become the central Internet-based marketplace for consumers who do not get health benefits at work.

The major coverage expansion envisioned by the new law also will rely heavily on Medicaid.

California currently covers about 7.5 million people in its $51-billion program, known as Medi-Cal.

But Medi-Cal, which like all Medicaid programs nationwide is jointly funded by the state and federal governments, primarily covers poor children and their families, disabled people and low-income seniors (who are also covered by Medicare).

The waiver will allow the state to phase in coverage for citizens and legal residents who make less than 133% of the federal poverty level, or $14,404 a year for a single person.

Under the new healthcare law, all state Medicaid programs will have to reach that goal starting in 2014.

California Medicaid director Toby Douglas said the state anticipated that another 500,000 people would sign up over the next five years.

California also plans to work with some counties to use the waiver to expand coverage to those with incomes up to twice the federal poverty level.

In addition to expanding coverage, the Medicaid waiver is designed to shift more Medi-Cal beneficiaries into managed care, which many healthcare experts think can improve quality while also containing costs. That is supposed to help free up money for the coverage expansion.

"We can afford to do this," Douglas said, adding that the state will not have to increase its Medicaid spending.

Better efficiency will be even more important after 2014, when more Californians will be moved into the program.

The waiver will also make billions of dollars available to hospitals serving low-income people that better coordinate care and meet new quality standards, key goals of the national healthcare overhaul.

"We're happy to join in partnership with California to model a healthcare delivery system that works better for patients as well as builds a bridge to 2014," said Cindy Mann, deputy administrator of the Centers for Medicare and Medicaid Services, which approved the waiver.